Inflation and Consumer Experience: Understanding Reference Prices
After experiencing two years of the highest inflation rates since the 1980s, many indicators suggest that the rapid increase in prices is now largely under control. However, this perception does not align with the reality faced by consumers in their everyday lives.
When shopping in grocery stores or dining at restaurants, many consumers continue to experience what can only be described as sticker shock. This phenomenon is significantly influenced by what economists refer to as “reference prices.”
In consumer behavior, a reference price represents the amount that individuals have come to regard as the fair or normal cost for a particular product or service, typically based on their recent purchasing experiences. For example, if consumers have become accustomed to paying around $3 for a slice of pizza, suddenly being charged $4 can feel like an unfair hike in price.
One Reddit user, known as can-dee, recently shared a relatable experience regarding the fast-casual salad chain Sweetgreen. In their post, they expressed surprise at the rising costs of their usual order: “I went to get my regular crispy rice bowl and the price came out to $18 and some change! It used to be $15! Is this a seasonal change or a forever type of thing?! Omg. Anyone else notice this or is it just in my area?”
Such sentiments highlight the growing frustration among consumers who are grappling with continual price adjustments, even as broader economic indicators suggest a stabilization of inflation.
How it’s pronounced: /rĕ-fər-əns prīs/
